United States: SEC Issues Guidance For Shorter Debt Tender Offers

On January 23, 2015, the Staff of the U.S. Securities and
Exchange Commission (the "SEC") issued a no-action letter
that allows certain tender offers for non-convertible debt
securities to remain open for five business days, as opposed to the
20 business day period specified in Rule 14e-1 under the
Securities Exchange Act of 1934 (the "Exchange
Act").1 The no-action letter supersedes
several prior no-action letters that had established market
practice for abbreviated tender offers for nearly 30 years.

Takeaways

The new no-action letter is a significant development for
liability management practices. It impacts not only the
shortened debt tender offers for which it grants relief, but also
the planning of tender offers generally and the ability to conduct
shortened tender offers that would have been allowed under previous
SEC guidance.

Longstanding Guidance is Superseded. The
letter replaces and significantly revises longstanding guidance on
seven to 10 day tender offers for investment-grade debt
securities. As a result, issuers and financial advisors
conducting shortened tender offers will need to update their offer
documents and processes to comply with significant new procedural
and substantive requirements.

Immediate Widespread Dissemination is
Required. A key component of the new requirements is
that the tendering issuer must make immediate widespread
dissemination of the tender offer documents, including a press
release announcement with a hyperlink to website copies of the
tender offer documents. Private companies that do not file
reports with the SEC will therefore need to make their tender offer
documents publicly available in order to comply with the new
requirements.

Relief is not Available for Debt Restructurings
Involving Consent Solicitations. The no-action
letter extends relief for issuers of high-yield debt securities to
conduct shortened tender offers, which were previously available
only for investment-grade debt securities. However, the
relief is not available for tender offers made in connection with
solicitations of consents to amend the terms of the indenture for
the debt securities, which can be an important part of debt
restructuring. Issuers that wish to combine a consent
solicitation with a debt tender offer will instead need to provide
a 20 business day offer period.

Shortened Tender Offers Cannot be Used in Connection
with M&A Transactions. Relief under the new
no-action letter is unavailable for tender offers made in
anticipation of, in response to, or concurrently with, a merger,
change of control or other extraordinary transaction. This
restriction is broader than in prior SEC relief for
investment-grade debt tender offers. As a result, the
criteria in the new no-action letter are more restrictive for
investment-grade issuers seeking to conduct refinancings in
connection with or contemporaneous with fundamental corporate
transactions.

Investment-Grade Issuers have Reduced
Flexibility. While the letter expands the
availability of shortened tender offers to a broader group of
issuers, which should allow greater speed and certainty in debt
restructurings, the additional new restrictions may make the relief
unavailable in many situations. As a result, investment-grade
issuers that could have relied on SEC guidance to conduct shortened
debt tender offers in the past may find that they are now required
to conduct longer refinancing tender offers with offer periods of
at least 20 business days.

Possible Future SEC Action. The letter
also indicates that the SEC Staff will monitor debt tender and
exchange offer developments and may issue guidance in the future
that could impose additional restrictions on other longstanding
debt tender offer practices, similar to those now applied to
shortened tender offers.

Five Business Day Tender Offers

In general, Rule 14e-1 under the Exchange Act requires a minimum
offer period of 20 business days for all tender offers.
However, the SEC has issued prior no-action letters allowing
shorter offer periods of seven to 10 business days for
investment-grade non-convertible debt securities, subject to
expedited communications and other requirements.

The new no-action letter permits shortened tender offers for
non-convertible debt securities regardless of credit rating and
provides that the SEC Staff will not recommend enforcement action
under Rule 14e-1(a) or Rule 14e-1(b) under the Exchange Act if an
offeror conducts a tender offer for non-convertible debt securities
and the tender offer remains open for a period of at least five
business days and satisfies the other criteria in the letter (a
"Five Business Day Tender Offer"). This no-action
position is effective immediately and supersedes prior no-action
letters relating to abbreviated offering periods in non-convertible
debt tender offers, including Goldman, Sachs & Co. (March 26,
1986); Salomon Brothers Inc (March 12, 1986); Salomon Brothers Inc
(October 1, 1990); and any similar letters.

Criteria

To qualify as a Five Business Day Tender Offer, the offer must
satisfy the following detailed requirements set forth in the new
no-action letter.

Debt Securities. The offer must be made
for a class or series of non-convertible debt securities,
regardless of credit rating.

Issuer, Subsidiary or Parent Offer. The
offer must be made by the issuer, a direct or indirect wholly owned
subsidiary or a parent company that directly or indirectly owns
100% of the issuer's capital stock (other than directors'
qualifying shares).

Consideration. The offer must be made
solely for consideration consisting of cash and/or Qualified Debt
Securities. If Qualified Debt Securities are offered, the
offer must also comply with the requirements described below under
"Qualifying Exchange Offers." The consideration
offered may be a fixed amount of cash and Qualified Debt Securities
or an amount of cash and Qualified Debt Securities based on a fixed
spread to a benchmark interest rate, subject to announcement and
other requirements set forth in the letter. "Qualified
Debt Securities" means non-convertible debt securities that
are identical in all material respects (including the issuer(s),
guarantor(s), collateral, lien priority, covenants and other terms)
to the debt securities that are the subject of the tender offer
except for the maturity date, interest payment and record dates,
redemption provisions and interest rate; provided that Qualified
Debt Securities must have (i) all interest payable only in cash and
(ii) a weighted average life to maturity that is longer than the
debt securities that are the subject of the offer.

Any and All Securities. The offer must be
for any and all of the subject debt securities.

Open to All Holders. The offer must be
open to all holders of the subject debt securities. Exchange
offers in which Qualified Debt Securities are offered are subject
to the additional requirements described below under
"Qualifying Exchange Offers."

No Consent Solicitation. The offer may
not be made in connection with a solicitation of consents to amend
the indenture or other agreement governing the subject debt
securities.

No Default or Bankruptcy. The offer may
not be made if a default or event of default exists under any
indenture or material credit agreement to which the issuer is a
party; if the issuer is the subject of bankruptcy proceedings or
has commenced a solicitation of consents for a
"pre-packaged" bankruptcy proceeding; or if the board of
directors of the issuer has authorized discussions with creditors
to effect a debt restructuring.

Financing. The offer may not be financed
with the proceeds of any "Senior Indebtedness," which
means indebtedness incurred to finance all or a portion of the
consideration in the offer (excluding indebtedness under any credit
facility existing prior to the commencement of the offer) if such
indebtedness (i) has obligors, guarantors or collateral (or a
higher priority with respect to collateral) that the subject debt
securities do not have; (ii) has a weighted average life to
maturity less than that of the subject debt securities; or (iii) is
otherwise senior in right of payment to the subject debt
securities.

Guaranteed Delivery. The offer must
permit tenders prior to the expiration of the offer through
guaranteed delivery by means of a certification that delivery will
be made no later than the close of business on the second business
day after the expiration of the offer.

Announcement by Immediate Widespread
Dissemination. The offer must be announced at or
prior to 10:00 a.m., Eastern time, on the first business day of the
five business day period by "Immediate Widespread
Dissemination": by means of a press release disclosing the
basic terms of the offer (including the identity of the offeror,
the class of subject securities, the type and amount of
consideration being offered and the expiration date of the offer)
and containing an active hyperlink or Internet address to copies of
the offer to purchase and letter of transmittal, guaranteed
delivery instructions and other instructions or documents relating
to the offer. The issuer must also promptly announce the
offer by email or other electronic communications and other
customary methods.

Additionally, if the offeror is an Exchange Act reporting
company, it must furnish the press release announcing the offer in
a Current Report on Form 8-K filed with the SEC prior to 12:00
noon, Eastern time, on the first business day of the offer.

Changes to the Offer. The offeror must
communicate material changes to the offer by Immediate Widespread
Dissemination. Any change in the consideration being offered
must be disseminated at least five business days prior to the
expiration of the offer. Any other material change to the
offer must be disseminated at least three business days prior to
expiration. As a result, changes may require extensions of
the offer. Offerors that are Exchange Act reporting companies
must also describe any change in the consideration in a Form 8-K
filed with the SEC prior to 12:00 noon, Eastern time, on the first
day of the remaining five business day period.

Withdrawal Rights. Tendering holders must
be able to exercise withdrawal rights (i) at least until the
earlier of (x) the expiration date of the offer and (y) in the
event that the offer is extended, the tenth business day after
commencement of the offer, and (ii) at any time after the 60th
business day after commencement of the offer if the offer has not
been consummated within 60 business days after commencement.

No Early Settlement. The offeror may not
pay the consideration in the offer until promptly after expiration
of the offer pursuant to Rule 14e-1(c).

No Merger or Extraordinary Transaction.
The offer may not be made in connection with or contemporaneously
with several types of extraordinary transactions. In
particular, the offer may not be:

made in anticipation of, in response to or concurrently with a
change of control or other extraordinary transaction involving the
issuer, such as a merger, reorganization or sale of all or
substantially all of its consolidated assets;

made in anticipation of or in response to other tender offers
for the issuer's securities;

made concurrently with a tender offer for any other series of
the issuer's securities made by the issuer (or its subsidiary
or parent) if the effect of such offer would be to add obligors,
guarantors or collateral (or increase the priority of liens
securing such other series) or shorten the weighted average life to
maturity of such other series; or

commenced within ten business days after the first public
announcement or the consummation of the purchase or disposition by
the issuer of a material business or amount of assets that would
require furnishing pro forma financial information pursuant to
Regulation S-X under the Securities Act of 1933 (the
"Securities Act").

Qualifying Exchange Offers

In addition to cash tender offers, the new no-action letter
permits qualifying exchange offers with periods of at least five
business days. To qualify for the relief, the non-cash
consideration must be Qualified Debt Securities and the offering
must satisfy the following additional requirements.

Exempt Offering. The offer must be exempt
from the registration requirements of the Securities Act.

Participants. The offer must be
restricted to "Eligible Exchange Offer Participants":
Qualified Institutional Buyers, as defined in Rule 144A under the
Securities Act, or non-U.S. persons within the meaning of
Regulation S under the Securities Act.

Holders that are not Eligible Exchange Offer Participants (or
their affiliates) must be given an option to receive cash for such
holders' debt securities in a fixed amount that approximates
the value of the Qualified Debt Securities being offered. The
amount must be set forth at the commencement of the offer.

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